September 9, 2008


Russian wheat prices look set to fall as it loses competitive edge


Russian milling wheat prices have come under pressure as international grain prices have sunk on news that bumper harvests are expected in several major producers.


Russian wheat is no longer competitive on world markets, as international prices have come down, and Russian companies lost out to U.S., Canadian and Ukrainian suppliers in an Egyptian tender last week, agricultural analyst group SovEcon said.


SovEcon said prices had risen slightly last week, though were starting to come under pressure, while the Institute of Agricultural Market Studies (IKAR) said the decline had already begun.


The rouble fell last week to its lowest in 18 months as war in Georgia and cool diplomatic relations with the West caused investors to take money out of Russia.


Although that weakening has helped Russian grain exports, it is not enough to raise the competitiveness of Russian grain, SovEcon said.


Russia is now harvesting its 2008 crop, which is likely to be its largest in 15 years.


As of Sept. 5, Russia is estimated to have exported a record amount of grain since the start of the season -- almost 3.5 million tonnes, 90 percent of which was wheat, IKAR said.


IKAR said domestic milling wheat markets had cooled.


SovEcon, however, said feed wheat prices were supported by the government's intervention tenders, but the effect was more "psychological", as only 38,340 tonnes of feed wheat had been purchased to date.


The group said although wheat prices rose marginally last week, a downward price trend on world commodity markets would soon filter through to the Russian market.


Russia failed to win a tender in Egypt last week, it said, as Egyptian state buying agency GASC bought Canadian and US wheat which were offered at US$230-$237 per tonne FOB and Ukrainian wheat offered at US$259 per tonne FOB.


Russian wheat export prices were about US$270 a tonne, free-on-board Novorossiisk.


"Until recently, Russian and Ukrainian wheat prices were quite competitive on many important export markets, but currently this advantage has already been lost," SovEcon said.


The market will soon re-assess the share of feed grain in the new crop, which may be not so low as was previously believed, SovEcon said.

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